We have known about the ageing population in the UK for many decades. As families have spread geographically, and community and state support has reduced, more responsibility is being placed on the individual to look after themselves in later life.
The average weekly cost of living in a residential care home is £704 a week, rising to £888 a week¹ if nursing care is required, depending on the region. And while many people think they will qualify for state support, most do not; over 50% of people going into a care home are paying some or all of the fees.
With care costs continuing to increase, a persistent concern amongst the elderly is the potential cost of care were they to lose the ability to look after themselves and how this would impact their finances.
There are a variety of ways in which care costs can be met. This article focuses on one of the lesser known methods, termed ‘long-term care insurance’. Long-term care insurance aims to help directly with concerns surrounding meeting the ongoing costs of care and can be adjusted to meet an individual’s circumstances or desires. It does this by providing a regular income to pay fees for a nursing home or for home care where clients can no longer look after themselves due to old age or long-term disability.
By providing financial certainty, and coupled with the right advice, care funding plans can have a major role to play in allaying the worries that older people and their families may face. In exchange for a one-off payment, care plans provide an income for life. This can help safeguard against running out of money and, importantly, not being able to afford to pay for their care needs in the future.
There are two solutions to funding long-term care which are designed for people aged 60 or over, already receiving care (or will be within the next 12 months), and want to pay for it without any investment risk or threat to their eventual legacy.
- Immediate Care Plans
For those who need funding to start immediately, and want the certainty of a regular, guaranteed income for their lifetime. The provider will then make a monthly payment to the client’s UK registered care provider for the rest of their life.
- Deferred Care Plans
For those who can afford to cover their own care fees for up to five years, but would like the certainty of an income for life that starts at the end of the selected deferred period.
Any income paid from care plans to a UK registered care provider in respect of care for the annuitant is made tax-free. Care fees can increase over time due to inflation. To help reduce the risk of a shortfall, clients can choose at outset for the income payable from a Care Plan to increase each year by a fixed percentage or by the Retail Price Index (RPI).
The average weekly cost of living in a residential care home is £704 a week, rising to £888 a week.
Care plans are individually underwritten, and based on the personal circumstances of each applicant. This means that the cost of the plan may vary considerably from person to person. For this reason, we would ensure a fully underwritten quote is obtained for each client we provide a proposal for.
One care insurance provider² has calculated the average cost of providing an initial income of £20,000 pa at various ages. This has been based on the average health condition of a person entering either a Residential or Nursing care home purchasing their care plan, in which conditions such as dementia, heart disease and stroke commonly feature.
As with all financial decisions there are various pros and cons:
- Benefits - Peace of mind that a guaranteed payment will be paid for life towards care costs. - Under current legislation there is no tax to pay on the payments if they are paid to a UK registered care provider. - Ring-fences a portion of assets so that the remaining wealth is protected. - Payments can be index linked. - Can include protections for repayment of part of premium if early death occurs.
- Risks - Flexibility in care providers selected to receive payments whether this be in a home or residential setting. - May get back less than paid in. - If no longer require care or become eligible for NHS funding, the client would be unable to cancel the income but, payments can be paid directly to the individual subject to income tax. - Receiving payments may affect the ability to claim for means-tested state benefits.
If funding your own care, or that of a family member, is a concern then long-term care insurance should be an area that you make yourself familiar with.
Overall, long-term care insurance can prove to be of significant benefit to certain individuals. In particular, it can help to simplify a matter that is a regular cause of stress and/or anxiety to both care receivers and their loved ones.
If funding your own care, or that of a family member, is a concern then long-term care insurance should be an area that you make yourself familiar with. With long-term care being a highly specialised area it may be appropriate to consider a conversation with a suitably qualified adviser who can guide you through the options available and, where appropriate, provide advice.
2 Just Retirement
To meet one of our Chartered Financial Planners to discuss tax, estate or wealth planning, please contact your investment manager who will be happy to arrange a meeting.
The information provided in this article is of a general nature. It is not a substitute for specific advice with regard to your own circumstances. Any figures quoted are accurate at the time of publication.
Illustration by Adam Mallett